A micro-simulation model of firms: Applications of concepts of the demography of the firm

Recently, there is an increasing demand in spatial planning for models based on the demographic concepts of birth and death of firms. This article describes the structure of a spatial demographic simulation model of firms, and its application within The Netherlands. The model structure is essentially of the familiar demographic cohort component type, where an initial cohort of firms ages in a number of discrete steps, and where in each step additions and subtractions to and from the population are modelled using birth, death and migration components. Apart from the central processes of birth, death and migration, the type of economic activity and firm size are highly important for understanding firm behaviour over time. The article describes the transition functions for each of the demographic components and for firm growth. In addition, some empirical results are presented of a number of model simulations in The Netherlands. The results were partly validated using observed economic demographic data. It is concluded that a substantial amount of work remains to be done in this new field. The model presented here has direct implications for the research agenda of the study of the demography of the firm.